New York regulators have ordered Paxos Trust Co. not to issue Binance‘s dollar pegged cryptocurrency, BUSD. Despite the giant crypto exchange’s assurance that the stablecoin was approved by New York’s financial regulator, the New York Department of Financial Services has ordered Paxos to cease creating more of the popular BUSD tokens.
Binance USD, also known by BUSD, is stablecoin that’s backed on a one–to-one basis by U.S. dollar. With over 6.2million holders, it has grown to become third-largest stablecoin market cap. BUSD’s market cap will drop due to the halt in issuance. It was estimated at $16 billion as per Monday.
Regulators have taken a tough stance against the crypto sector amid increasing scrutiny of crypto companies. Paxos was informed by the Securities and Exchange Commission (SEC), that it intends to sue the company because it violates investor protection laws. This is the first time the SEC has taken enforcement actions against a major stablecoin issuance.
Stablecoins are a popular option for traders who want to quickly buy and sell cryptocurrencies. They provide stable tokens that can be traded in and out without the need for bank settlements. Companies like Paxos have generated a steady source of income by issuing stablecoins and investing users’ cash deposits in short-term U.S. Treasurys.
As regulators tighten their grip on crypto, the future of Binance USD is uncertain. Paxos will still manage redemptions, but it remains to see if the stoppage of BUSD issuance has long-lasting consequences for the stablecoin market.